We were looking through the usual market updates and forecasts and it struck us how many brokerage firms (and other advisors) were already making their economic and market calls for next year. Being in the business more than a few years we know what this is all about. You make a market or economic call and if you are lucky enough to get it right. You pretend to be a genius and you milk your new-found notoriety for all its worth in terms of exposure and hopefully new clients.
FX Concept’s John Taylor, Jr. had a nice piece on how divergent these firm forecasts were with what he was getting from the underlying traders in the pits. Here is what he had to say:
The market outlooks we are receiving for this next year are as diverse as we have ever seen. Our most conservative and highly qualified mainline economist is forecasting US growth at 5% for the second half of next year, lining up with most of the major bank economics departments. Talk to the analysts on the trading desks and you hear a very different tune. The financial markets are showing unusually bubblish valuations, ones that historically argue for sharp negative reversals. In fact there are so many investments with negative outlooks for returns that it is almost impossible to know where to put money. Trading desks, from senior dealers to market analysts, generally see trouble, and some see it immediately ahead. Forecasting shortcuts are not looking good. The Hindenburg Omen has been triggered and the Titanic Syndrome will probably follow – all it takes is one big down day in equities. As one might guess these are not positive signs in market lore. Another respected analyst has an Aunt Minnie condition to foretell disaster – of course, it too has been satisfied.
Mr Taylor goes on to state their forecast and speak more about why government spending played such an important part in 2010 growth and why 2011 will again be highly dependent on government support via QE2 or even QE3 or QE4.
However, the bottom line here is no one knows what is going to happen in the future. Well let me restate that, no one here on earth knows. I am sure God has a pretty good idea.
So why put any credence in these forecasts and the biased expectations formulated to separate you from your investment dollar? The simple answer is you shouldn’t!
We at InTrust Advisors use technical analysis to attempt to divine the short-term and the longer-term future, but even this is a on again, off again proposition. As a matter of fact, with all the government interference in the markets, this age old trading tool has gotten even tougher to use.
Since traditional ebbs and flows of the market have been replaced with scheduled treasury repurchases and resulting member bank investments in the markets. These ebbs and flows have been entirely replaced by a government schedule of bond purchases. This has made the past 18 months almost untenantable for the technical analyst, especially those like us who didn’t get the memo right away from the government.
However, we do have one tool in our chest that, may not give us a forecast of the future, but certainly lets us know when the party is over for the markets or the economy.
That tool is (drum roll please)….. the trend. The trend! What on earth do you mean?
Well, if even we believe the economy (and consequently) the markets are going to roll over using our technical tools, the determining factor on what we do is always predicated on the trend. We traditionally invest long once an upward trend has been established.
As trend followers, we then are on the constant look out for reversals in the trend. As long as the trend continues upward, we stay the course and ignore the naysayers and market prognosticators. When that trend starts to rollover and our indicators flash reversal, we move aside or short. Again, it doesn’t matter at that time how many advisers are jumping up and down and screaming “buy buy” on CNBC.
It’s analytical and it really works well at keeping our clients out of down 50% bear markets. It also allows us (your faithful managers) to sleep well at night.
So as 2011 approaches, don’t focus on the forecast instead focus on the trend. Just like God, it is the only sure way to know when the Wall Street and Economic party has ended.
[...] This post was mentioned on Twitter by Jeff Diercks, Jeff J Diercks. Jeff J Diercks said: Only God Know The Future – Why Do We Still Try To Forecast It?: We were looking through the usual market updates… http://bit.ly/hnbz9L [...]